How The 4% Digital Factor Impacts The Upfront

Explaining the traditional TV advertising upfront market comes to those looking to sink into a rabbit hole of economic theories and calculations.

Now we can add one more factors: a 4% digital factor.

This year, Jefferies’ media analyst John Janedis predicts the upfront will be “weaker than a year ago” because the 4% digital factor from last year won't be in evidence as much this round.

For last year’s upfront, Media Dynamics said national TV networks had 4.5% rise, or $800 million in revenue, to land at $18.61 billion -- $9.86 billion for cable networks and $8.75 billion for the broadcast networks.

Janedis believes last year’s rise was virtually all due to the 4% digital media factor. All this contributed to digital video media problems: viewability, fraud and scale. As a result, traditional TV upfront performance gained in volume for the first time in three years.



Janedis, believes this year's revenue will be return to its sinking ways -- $18.2 billion, broadcasters down 3% and cable off 1%.

But this doesn’t necessarily mean a decline in the core pricing metric national TV advertisers use as as baseline for TV marketers upfront deals: the cost per thousand viewers (CPMs).  Last year, CPMs climbed near double digit percentage levels -- or more -- for many networks.  BMO Capital Markets’ Daniel Salmon says this year there will be a “return to low single digit price increases”.

But what continues not to calculated in much of these estimates are the revenues TV networks gains from digital media. In this regard, not all digital media is the enemy.

A year ago, UBS media analyst Doug Mitchelson estimated digital video advertising for traditional TV companies was projected to get to $2.1 billion in 2016. That said, one might want to include new advertising video on demand efforts coming from pay TV providers (cable, satellite, telco) for those TV networks.

Canoe Ventures believes this now comes to around $1 billion a year.

How much of this is done as part of upfront deal-making? That’s big question. Perhaps what specific non-traditional media dollars media buyers (from Google, Facebook, and others) are “upfront”/“newfront” media buys.

Look for more upfront factors to come. And happy rabbit hole hunting.

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